Reaching Shoppers As They Shop

Research tells us a lot about consumer behavior in retail stores: buyers make 74 percent of their purchase decisions inside the store; most of them do not specify brands when they make shopping lists; and most welcome in-store advertising and find that it is informative, improves shopping efficiency, and often saves money.

These findings suggest a ripe field for a company like In-Store Broadcasting Network (IBN), with its specialty, in-store broadcasting. Already claiming to be the exclusive in-store radio provider for 16,000 retail partners and the largest in-store radio network in America, IBN has found a new way for advertisers to “capture eyeballs.” With its PerfectMedia product, it is quickly moving from broadcasting purely audio messages to also delivering messages on video.

In its effort to penetrate the pharmaceutical and healthcare sectors, IBN has opened a sales office on Chambers Street for its brand new division, Pharmacy and Healthcare. It hopes to debunk the traditional advertising rule: Use moving messages in a stationary environment (TV in the home) and stationary messages in a moving environment (billboards on the highway).

Prescription drugs and healthcare, it seems, have all the right characteristics for in-store video: In a pharmacy, while the pills are dispensed, patients often wait a long time for their prescriptions; stores usually have a lot of foot traffic; and shelves are stocked with a variety of health and wellness products.

Video screens with health information are a perfect fit, says Rick Granato, IBN’s vice president of pharmacy and health care and head of the new Princeton-based division. Working with Granato in this Chambers Street office is Andrew Friedheim, director of national accounts. “You can intercept people with a message at the most opportune time,” Granato says, “while they are thinking about health — with sight, sound, and motion. Our charge is to build integrated marketing plans for healthcare companies that would like to be seen by customers within that space.”

Advertisers need to find new ways to reach consumers, says Granato. As potential marketing venues — television channels, magazines, and Internet sites — have multiplied, the effect of advertising has been diluted. “Because media is so fragmented, we need to be creative and identify markets where we can target specific consumers. We have a unique opportunity to communicate compelling messages where people make their buying decisions.” For example, a young parent walking down the baby aisle might hear an audio message from Gerber about its baby foods.

The next step is to both “show” and “tell,” by placing video screens in key locations. IBN signed a 10-year agreement with Kroger last year and has just finished a pilot in a few Kroger stores in Cincinnati, Ohio. The next wave will be a series of stores in Houston. “We will continue to roll out over the next six to eight months through the entire network of Kroger stores,” says Granato. “We are testing, and we continue to test, test, test.”

IBN’s business model: IBN funds the hardware and technology and Kroger is the strategic partner, providing the space. IBN sells the ads and makes deals with Kroger and the advertisers on special promotions. Granato does not disclose the price for ads but says it is “extremely competitive with more traditional forms.” Inc. Magazine quotes a competitor’s prices as $27,000 for a four-week ad that runs five times an hour in a Los Angeles grocery checkout line.

In a given week Kroger’s 2,500 stores get 25 million shoppers and 68 million shopper visits, because some people return several times. “If they are able to increase basket size with one more product,” says Granato, “it’s a huge win for them.”

Four of the five channels in a supermarket like Kroger’s will tout products: at the pharmacy, on the parent and baby aisle, on the health and beauty care aisle, and in the grocery section. The fifth channel, at the checkout counter, might focus on entertainment — what television show is on that night, or the next hot movie. Each channel might have several screens. Once Kroger is up and running, IBN plans to migrate to other customers, like Duane Reade and Walgreen’s.

For the channels in a pharmacy, or the drugstore section of a supermarket, IBN will concentrate on patient education. The goal: Improve both patient compliance in taking a drug at all, and persistency, continuing to take the drug as long as it is needed. “When patients take a drug,” says Granato, “they often don’t stay on it because they don’t understand why they are taking it and how long they need it.” He foresees the pharmacist being able to sit customers down with a two-minute video about the drug and how it works in the body — all while waiting for their prescriptions to be filled.

Low compliance takes its toll not only on patients but also on the pharmaceutical industry. Compliance and persistency problems, especially with cholesterol and diabetes drugs, cost pharmaceutical companies millions of dollars. For example, when a cholesterol drug does its job, the doctor may say, “Your cholesterol is under control,” but the patient hears, “I’m better and don’t have to take the drug anymore.” Similarly, there are 20 million people with diabetes who take all kinds of drugs — to manage blood glucose, to relieve dry skin and eyes, and to fix periodontal problems — and they need to stay on them for years.

Substantial research is necessary to prepare for putting video screens in groceries or pharmacies. “People do not go into the store to watch TV,” says Granato. “We need to develop the content and programming in ways that are entertaining and demand the attention of shoppers, who almost have wheels attached to their feet as they are walking around the store.”

Research for this new medium, called narrowcasting, must determine what consumers like and don’t like, what graphics will be most effective, and how long program and content segments should be.

IBN has already made significant investments to understand where screens should be located in stores. It studied 9,000 shopping trips by embedding radio frequency identification device (RFID) chips in shopping carts and then using software to map where customers navigate and where there is a great deal of “dwell time” (basically, standing still) in the store. IBN uses this map to install screens in the most highly trafficked areas — sometimes overhead, sometimes on the shelf.

Once the screens are in place, they can be used to provide information or to try to influence shopping patterns. Screens on the actively navigated store perimeter can be used to move customers into areas of the store that don’t get a lot of traffic or where specific brands are located, to encourage “brand switching.” IBN will also use engaging and entertaining content to encourage impulse purchases.

IBN, based in Salt Lake City, started out as a music provider, sending cartridges to each store to be played over the public address system to create the right kind of energy for motivating shoppers. “It was just music piped in,” says Friedheim. “Five years ago, Safeway asked us to do it digitally. We turned the industry on its ear and streamlined everything.” Houston, for instance, might want to emphasize country music that would not be appropriate for Manhattan. Some stores get their feed from a satellite desk, some from the Internet. “Because it is digital, we can change things on the fly,” says Friedheim.

So far none of IBN’s screens can be seen in Princeton, though a competitor, Thomson-owned PRN Corporation, manages in-store television networks at Central Jersey locations — big box stores like Wal-Mart and Circuit City and also at ShopRite supermarkets. Other competitors include Creative Realities in Fairfield, New Jersey, RMS Networks in Fort Lauderdale, Florida, and EDR Media in Las Vegas, Nevada.

“I like the fact that there are a lot of companies in our competitive space because it validates what we believe to be true — that traditional forms of advertising are less effective than they once were,” says Granato.

But PRN (Premier Retail Networks) was first in this field and is still the biggest; it got its start with a 1997 Wal-Mart contract. Based in San Francisco, it landed a total of $77 million in venture capital from such investors as General Electric’s GE Capital, media investors Allen & Co., and a Disney family-controlled venture capital firm. By 2003 annual revenue had reached more than $112 million. In October, 2004 PRN announced it would install its screens at checkout counters in ShopRite. Then it filed with the SEC to do an initial public offering worth $89.5 million, according to a June, 2005, story in Inc. Magazine. In July, 2005, PRN sold for $285 million in cash to Thomson.

Just two weeks after PRN signed the ShopRite contract, IBN closed a $16 million deal with a Boston-based venture capital firm, Great Hill Partners. According to the press release issued in 2004, IBN had the largest broadcast audio network in the U.S., with more than 20,000 retail locations that reached more than 110 million shoppers one and a half times per week. The product: an Internet-based system to deliver a customized music playlist, interspersed with in-store promotional messages and third-party advertising.

The VC’s press release did not mention video broadcasting, but surely that was in the works. IBN’s CEO, Robert Brazell, is the founder of Overstock.com and one of the most successful dotcom entrepreneurs. He and the president, Lon Von Hurwitz, had decided to begin developing video after being approached by several retailers, Granato explains.

Granato says he has an ownership position but denies that IBN is thinking about an exit strategy, i.e. getting bought out for the same kind of big money for which PRN sold. “We are in a growing phase,” he says.

Granato grew up in Little Silver, where his mother had a retail store and his father was a CFO of a New York-based publishing firm. He majored in business at McDaniel College in Westminster, Maryland, graduating in 1990 with the idea of going into nontraditional forms of advertising.

His first job: In a well-known training program at American Greeting Cards, where, he says, “I spent a lot of time in stores.” Then he moved to the publishing world and in the mid-1990s began working for Snyder Communications, where he was responsible for launching place-based media programs in doctors’ offices, day care centers, and airports. He joined Snyder when it was small, less than 50 employees, and when Dan Snyder sold the company, there were 1,000 employees. (Snyder then bought the Washington Redskins.)

Granato went to New York-based Accent Health, another firm that brings media to doctors’ offices, where he was vice president of sales. Six years ago Granato was one of five founders of Exam Room Network (ERN) a medical marketing platform based in physicians’ examination rooms.

After selling ERN in the first quarter of 2005 to Cincinnati-based On Target Media, Granato stayed on for 10 months. Then, when he was recruited by IBN to build a pharmacy platform, starting with Kroger, he kept his Chambers Street office. He lives in Princeton with his wife, Amy, and their preschool son and infant daughter.

Friedheim, the son of a New York-based jewelry designer, grew up in Kendall Park and majored in marketing at University of Maryland, Class of 1986. His wife, Jessica, is a medical malpractice attorney, and they live in Pennington with their preschool and school-age daughters.

IBN has some outside funding, but the new division is supported entirely by IBN corporate. Right now IBN has about 50 employees in the company as a whole, with headquarters in Salt Lake City and sales offices in Chicago, Cincinnati, New York City, Los Angeles, and now Princeton. In 60 days this division has gone from zero to six employees. Granato will add sales, marketing, and research staff. Currently, a leading allergist, Kevin O’Brien MD, based in Denver, is helping to develop medical content and ensuring that it is credible and accurate.

IBN’s Princeton office is now in the process of developing strategic partnerships with many of the large pharmaceuticals and packaged goods companies that want to be in pharmacies. “Charter advertisers have the opportunity to get into the game with category exclusivity and a range of benefits,” says Granato. IBN is offering these exclusive arrangements because of the substantial investments that IBN will require to install its system. By making an early commitment, companies can block out competitors and help design research and build in metrics.

The Kroger rollout is essential to IBN’s video strategy. “Critical findings from the Kroger initiative,” says Granato, “will enable us to be more effective and efficient as we roll out other chains.” He sees in-store video as not just bringing to bear another marketing technique, but as heralding a sea change: “It will allow us to revolutionize the way brands market themselves in a store.”